N.L., N.S. sign 13 agreements to develop Muskrat Falls project

Sue Bailey, THE CANADIAN PRESS
Published Tuesday, July 31, 2012 11:48AM ADT
Last Updated Tuesday, July 31, 2012 7:42PM ADT

ST. JOHN'S, N.L. -- Contracts signed Tuesday between Newfoundland and Labrador and Nova Scotia were cast as a step toward the proposed multibillion-dollar Muskrat Falls hydro project despite big questions on costs and rate hikes.

Newfoundland Crown corporation Nalcor Energy and private Nova Scotia utility Emera Inc. (TSX:EMA) signed the 13 deals spanning 50 years based on a term sheet announced with fanfare in November 2010. They include 1,500 pages of legal detail nailed down over 20 months and two missed self-imposed deadlines.

The plan to harness power from the lower Churchill River in Labrador before transmitting it to Newfoundland and then Nova Scotia using subsea cables is expected to top $6.2 billion. But updated costs that were expected two weeks ago weren't yet complete Tuesday as the formal agreements were signed.

Those details are now expected later this summer or fall before politicians in Newfoundland and Labrador debate the development and the Progressive Conservative government decides whether to go ahead.

Still, Newfoundland and Labrador Natural Resources Minister Jerome Kennedy said he believes Muskrat Falls will be the cheapest solution for his province's energy needs with the added potential of selling excess power to the Maritimes and New England. He said a power gateway through Nova Scotia is also the answer to transmission blocks put up by Quebec.

"We will finally be able to escape the geographical stranglehold that Quebec has had us in for almost 50 years," Kennedy told a news conference alongside his Nova Scotia counterpart in St. John's.

"It means in addition to simply having a transmission route, we can finally secure a competitive price for our power. It means we can finally move forward with our vision of unleashing the power of Newfoundland and Labrador's energy warehouse."

Kennedy said successive governments have tried to work with Quebec since the signing of a woefully lopsided deal on the Upper Churchill hydro site in Labrador.

The 1969 agreement to ship power from Labrador to Quebec for sale has reaped about $20 billion in profits for Quebec, versus $1 billion for Newfoundland and Labrador, Kennedy said. The deal did not reflect rising energy values and does not expire until 2041.

Nova Scotia Energy Minister Charlie Parker called Muskrat Falls a "game-changing project" that will help wean his province off coal while creating jobs.

In exchange for funding a subsea link between Newfoundland and Nova Scotia and providing transmission rights, Parker said his province will get 20 per cent of Muskrat Falls power for 35 years. After that, Nalcor assumes ownership of the Maritime link.

Nova Scotia will get extra power from the Maritime link over the first five years of that 35-year period -- slightly less than 25 per cent of Muskrat Falls energy -- to reflect the project's 50-year life span, said Nalcor president and CEO Ed Martin.

Overall, Nova Scotia's share of the 824 megawatts to be produced at Muskrat Falls starting in 2017 is expected to meet between about 10 and 30 per cent of the province's needs depending on demand.

Newfoundland and Labrador is expected to need about 40 per cent, with the rest available for sale in the Maritimes and New England. A big question is how much that power will cost and whether it will be competitive as new sources of natural gas transform U.S. energy markets.

Gordon Weil, former director of the Maine energy office who led the national group of state energy agencies, said prices in New England are dropping thanks to shale gas supplies that will likely last for decades. Delivered power costs about 12 cents per kilowatt hour, he said from Harpswell, Maine.

If Muskrat Falls power costs more than that, plus transmission, the price won't be competitive, Weil said. But he added that no one can forecast energy prices into the future, and that he thinks Muskrat Falls "is not a bad idea" in Atlantic Canada.

It can replace oil- and coal-burning plants with cleaner hydro, but its costs should be more widely shared, he said.

"What is missing, in my view, is any kind of regional co-operation which spreads the benefit and the cost across Atlantic Canada."

Martin said in an interview last year that Muskrat Falls is a cost-effective project whether or not its power is ever sold outside the province. But as part of the agreements signed Tuesday, Nalcor also gets transmission rights in New Brunswick and New England plus the chance to invest in existing and future Emera projects.

The dam and generating station on Labrador's lower Churchill River would also replace an aging oil-fired plant in Newfoundland, meaning the province would be 98 per cent-powered by renewable energy.

Nalcor and Emera signed the agreements in what they said is a necessary step toward a utility review in Nova Scotia and a decision by Newfoundland and Labrador on whether to sanction the development.

Officials said the deals allow for flexibility should those reviews raise unforeseen concerns.

Emera president and CEO Chris Huskilson said a power purchase agreement could be worked out if Muskrat Falls does not pass muster with Nova Scotia's utility regulator. But he said he believes its costs will be comparable to other renewable options.

"I think customers are going to be well served by this project over its life."

Martin said any cost overruns related to the dam and transmission lines in Newfoundland and Labrador would be Nalcor's responsibility.

Overspending on the subsea link between Nova Scotia and Newfoundland, if not considered by regulators to be "prudent" and eligible for absorption in rates, will be shared as Emera picks up the first five per cent and Nalcor the next five per cent with leftover costs divided evenly.

Total costs for the project and the resulting price of power will be clarified later this year pending a review by Manitoba Hydro International.

Opposition politicians raised alarms that the agreements were signed despite gaping information holes.

"Here we are today with a term sheet in place with Emera and we don't know the cost," said Dwight Ball, Newfoundland and Labrador's Liberal Opposition leader. His fear is that electricity bills will soar and that Muskrat Falls power will be too pricey to export at a profit.

In Nova Scotia, there were similar worries.

"To me, the premier has signed a blank cheque without telling Nova Scotians what that's going to equate to," said Tory energy critic Chuck Porter. He said he wants more detail on any escape clauses over such a long agreement.

Liberal energy critic Andrew Younger went further.

"Nalcor and Emera will both make money at this, but it will be on the backs of Nova Scotians. We'll pay for the Maritime link for 35 years and, at the end of it, we won't own it and then we'll be subjected to whatever the market prices are after that.

"The Newfoundland legislature will have an opportunity to vote on this deal but the Nova Scotia legislature will not," he said. "Nova Scotians are being treated as the poor cousins in this relationship."